This article was originally published in the January/February 1993 issue of Home Energy Magazine. Some formatting inconsistencies may be evident in older archive content.

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Home Energy Magazine Online January/February 1993

SPECIAL SECTION ON REFRIGERATORS

The Race to Make The Fridge of The Future

CHASING THE GOLDEN CARROT

A group of 25 utilities representing a quarter of the nation's electric customers has pooled $30.7 million to hasten the commercialization of more energy-efficient, less-polluting refrigerators. The Super-Efficient Refrigerator Program (SERP) will provide incentives to a single manufacturer, to be chosen through competitive bidding, to build and distribute roughly 250,000 refrigerators that are 25-50% more efficient than comparable models built according to 1993 federal appliance efficiency standards. SERP is the first so-called Golden Carrot strategy to be launched by the Consortium for Energy Efficiency, whose founding members include Pacific Gas & Electric Co. (PG&E), the Natural Resources Defense Council, the American Council for an Energy-Efficient Economy, and the U.S. Environmental Protection Agency.

The Golden Carrot program complements federal appliance standards by supporting technological innovation that will yield large and rapid increments of efficiency exceeding those standards. Perhaps even more importantly, Golden Carrot incentives are structured to demonstrate that super efficiency is not only technically feasible, but also marketable and competitive. The goal of the program is to get more efficient refrigerators into stores sooner than would would otherwise occur, and then to rely on the market to broaden consumer demand for a superior product. Golden Carrot is designed to show that utilities can be a potent force in seeding a market transformation without having to become perpetual investors to sustain that transformation.

SERP intends to achieve this result by dispensing its incentive money, not as up-front support for research and development, but as payments for each refrigerator distributed by the manufacturer. The manufacturer is responsible for getting the super-efficient units into the retail distribution chain in each utility's service area at prices comparable to conventional units with the same features.

How much each utility invests depends on its avoided costs, on how much of its total demand-side management budget it wants to dedicate to this particular market, and on its estimate of how much saved energy its investment will buy. This last figure will not become clear until the winning bid is chosen, since the bid will set the incentive payment for each refrigerator delivered and, hence, the cost per kWh saved. Utilities are generally investing $1.50-$2.00 per residential account, according to guidelines suggested by SERP.

Each utility investor will receive a number of units proportional to its investment. The number of incentive payments--that is, of refrigerators manufactured--covered by this level of investment is estimated to be about 5-10% of total refrigerator sales in each utility's service area for each year of the program.

To ensure that member utilities get the most for their money and to spur manufacturers to shoot for big efficiency improvements for the least cost, SERP has devised a bidding system that rewards bidders for maximizing energy savings, minimizing incentive payments, and committing to a speedy delivery schedule. SERP planners anticipate incentive payments of $100-$150 per unit, amounting to 2.5cents-3.5cents per kWh saved over the life of the unit. Annual savings could be 200-400 kWh over 1993 refrigerator efficiency standards

Another selection criterion is corporate reliability. Bidders must not only have experience with the specific technologies proposed and proven ability to build and ship thousands of units, but also must have a marketing strategy, a national distribution and service network, in addition to a system for tracking sales after the super-efficient models reach the retail market.

SERP received 14 bids from manufacturers in mid-October and was scheduled to announce two semi-finalists in mid-December. (It's important to note that six major manufacturers produce all but a handful of approximately 80 brand names of refrigerators sold in the U.S.) These two contenders will then have to produce prototypes and submit final offers by May 1, 1993. SERP expects to award a contract on the following July 1. The winning bid will specify the shipping schedule, which might reasonably be expected to begin in late 1994 and continue for about two years.

How many Golden Carrot units the incentive fund will buy will depend on the unit payment established by the winning bid. However, short-term share of market is not the point. Rather, the Golden Carrot approach aims to accelerate the introduction of leading-edge technology.

Golden Carrot is intended to complement utilities' current appliance efficiency programs, said Gary Fernstrom, acting director of residential retrofit in PG&E's Energy Efficiency Services Department. Most current programs provide moderate incentives in order to effect moderate improvements, said Fernstrom, who is also chief financial officer of of SERP. Golden Carrot provides larger incentives for larger improvements targeted at a smaller segment of customers. Its intent is thus to bracket the market not covered by programs such as customer rebates, dealer incentives, and dealer education.

How much energy consumption and demand SERP saves and at what cost compared to standard rebates will hinge on the level of incentive payments and the extent to which manufacturers and retailers succeed in building demand for Golden Carrot products after utility incentive payments have ceased.

A success here will undoubtedly encourage a similar approach to other major end-uses. The Consortium is considering other market opportunities, including commercial rooftop air conditioners, microwave clothes dryers, horizontal-axis clothes washers (lower water use and higher spin speeds, meaning less drying time), and office equipment.